US
Regulatory issues and voluntary norms adoption in the US and European Electric Utility sector Diana Mangalagiu Reims Management School, France & Institute for Scientific Interchange, Italy [email protected], [email protected]
Outline 1.
Energy issues: the big picture
2.
Climate change issue
3.
Electricity
4.
Energy policy: private and public role
5.
Deregulation of the Electric Utility sector (EU vs. US)
6.
Electric utility sector overview
7.
EU and US response to CO2 emissions
8.
Voluntary (self-regulation) vs. mandatory approach
9.
Conclusions
Energy issues: the big picture
A few figures 2006 - 2030: cumulative investment in energy-supply infrastructure: $22 trillion (in 2006 $) - The electricity sector requires $11.6 trillion (half for transmission and distribution networks + half for power stations - The oil sector requires $5.4 trillion - The gas sector requires $4.2 trillion - The coal sector: $600 billion - The bio-fuel: $188 billion - OECD: ~$8 trillion - China: $3.7 trillion (mostly electricity) - India: $1.2 trillion (mostly electricity) - Middle East: $1.9 trillion (mostly oil and gas)
Source: World Energy Outlook 2007
Source: World Energy Outlook 2007
Source: World Energy Outlook 2007
Fuel shares of total energy supply
Source: World Energy Outlook 2007
Top 10 Global 500 in 2006 (Fortune 500)
The climate change issues
World CO2 emissions
Annual European Community Greenhouse Gas Inventory 1990-2004; Inventory Report 2006, UNFCCC Secretariat.
Change in CO2 emissions in OECD countries (1991-2003)
Variation in carbon intensity among countries - World average: 540 gCo2/kWh - EU: 349 gCo2/kWh - North America: 476 gCo2/kWh - China: 1007 gCo2/kWh - Former USSR: 1653 gCo2/kWh
United Nations Conference on Trade and Development (UNCTAD), 2005
Some comforting thoughts…
Some comforting thoughts…
Slide 0
April 3, 2006
Dealing with the energy and climate challenges
Electricity sector
Electricity consumption per capita
Evolution from 1973 to 2004 of World Electricity Generation by Fuel (TWh)
Renewables in electricity
Source: IEA
Development of the Electricity Generation Worldwide Today one quarter of the world population does not have access to electricity. The demand for electricity will increase more rapidly. It is expected that the worldwide electricity consumption will double from currently 16100 billion kWh to a total of 31 600 billion kWh by the year 2030. About one fifth of the electricity generated worldwide is consumed in the EU (EU-25: 3 180 billion kWh). In 2030 still 70 % of the electricity generated worldwide will be based on fossil fuels. EU-25 that 60% of the electricity generated will be based on fossil fuels.
Changes in OECD generation capacity
Source: IEA
Electricity consumption
Electricity generation
The dependence on imported coal will increase in Europe from currently 30 % to 66 % in 2030. The dependence on natural gas will rise to 81% and for crude oil this figure will increase to even 88 %. The total share of imported energies will increase from currently 50 % to some 70 % by the year 2030.
Intended New Power Plant Projects in EU-25
But …
Source: European Environment Agency EEA, 2006
Electricity generation from renewables
Sources of Electricity in US (2006)
In 2006, the total generation of electricity in US was around 4.1 trillion kWh.
Energy policy: private and public role
Energy Uncertainties
Rate of climate change
Possibility of abrupt climate change
Policy uncertainty
EU, US federal policy, BRIC policies
Post-Kyoto international policy
Cost uncertainty
R&D successes
Cellulosic ethanol, batteries, carbon sequestration, fusion
Learning curve for energy technologies
Wind, solar PV, biofuels
Key changes affecting the energy sector Privatization Maturity of clean technologies Global and social environmental agenda Increasing concern about security of supply New policy framework being put in place Development of regional and global energy markets Incentives to renewables Public-private partnerships Declining costs and risks Improved profitability
Energy RDD&D: Key role of the private-public partnership Public Sector
Research
Development
Demonstration
Private Sector
Deployment
Energy-Related Market Failures
Externalities
Local and regional: SOx, NOx, mercury
Global: Greenhouse gases
Public goods
R&D
Transportation infrastructure
Market power
OPEC
Electric power markets
Missing information
Consumer knowledge of energy efficiency
Energy-Related Government Failures
(Rational) ignorance on the part of voters
Science of climate change
Special Interest Politics
Tax breaks and subsidies
Underfunding of energy R&D
Automobile GHG Policy: Big Oil v. Detroit
International Policy Coordination
Kyoto, other agreements
Deregulation of the Electric Utility sector (EU vs. US)
A SINGLE ELECTRICITY MARKET IN EUROPE – or 27?
Multiple agendas 1. Lisbon (2000): To become the most competitive and dynamic knowledge-based economy in the world by 2010 2. Gothenburg (2001): EU Strategy on Sustainable Development 3. Kyoto (1997-2002): EU-15 to reduce by 8% GHG emissions in 20082012 compared to 1990 levels 4. Johannesburg (2002): Boost energy efficiency, foster the use of renewables and diversify energy supply Are these objectives consistent or contradicting each other?
Europe sleeps Market concentration – national incumbents remain dominant. Vertical integration – insufficient “unbundling” (i.e. separation) of competitive and monopoly businesses. Lack of transparency – creates market uncertainty and deters investment. Network issues – lack of access to and capacity on the pipes and wires. Varied and weak national regulators – including increased political interference.
Brussels awakes Legislative program designed to ensure that Europe's market would be completely open by the commission's deadline of July 2007. Since 1999 big companies have been able to choose among rival power suppliers and in July 2004 all business users won that right, at least on paper. Why? 1. Under renewed pressure due to pricing and security of supply – concerted UK lobby. 2. ‘Blackouts’ places a focus on networks – Sweden, Italy, UK in 2003 and 2007 in Germany. 3. Unease over E.ON/Ruhrgas ruling … with more ‘difficult’ M&A cases due. 4. Unease over windfall gain from National Allocation of environmental certificates. 5. Global context – pressures on security of supply and new dynamic of East European states exaggerates this.
Main features of the EU Directive Competition in generation free market entry with authorization process competitive tendering
Retail competition negotiated third party access single buyer model (based on published non-discriminatory tariff but eligible customers can contract directly) eligible customers with annual consumption > 100 GWh
Dispute resolution procedures
Electricity rates in Europe
US: Energy policy: DOE
Main focus of DOE was (is) nuclear weapons
Energy companies take care of energy in US
DOE policy failure with the nuclear waste issues
DOE developed an extremely bad public reputation among many stakeholders (many law suits)
Source: Communications and Stakeholder Participation, DOE, June 2003
The era of cheap purchased electricity is over Average Inflation-Adjusted US Electricity Price (2006 $) 12,0 11,0
c/kWh
10,0 2009 projection
9,0 8,0 7,0 6,0
1970
1980
1990
2000
But higher prices have not led to a higher level of service
US energy use, 1635-2000 (Quadrillion Btu)
US energy supply & demand
US Electricity
Supply: regional markets, no storage
Demand: increasing
Current status: undergoing deregulation, serious regional problems
Longer term: inadequate transmission system, siting problems, no R&D $, huge potential for innovations
17 SC
3 SC
1 SC
State disparities in price
Deregulation Status (0-100% scale)
9 to 66 (23) 2 to 9 (3) 0 to 2 (24)
Vertical Dis-Integration
Evolution of US energy policy (1)
PUCHA (1935)
Broke up holding companies
Empowered state control of vertically integrated utilities
State regulation of generation & distribution; Federal regulation of transmission
PURPA (1978)
Created QFs (renewable and cogenerators)
Demonstrated viability of wholesale competition
Energy Policy Act (1992)
Created “Exempt (from PUCHA) Wholesale Generators”
Transmission “wheeling” for retail distribution
Evolution of US energy policy (2)
Spring 2001 Bush/Cheney energy plan (supply-oriented)
Fall 2001: House passes Bush plan
Today: Senate debates energy policy
International Initiatives Kyoto Protocol (February 2005)
International Emission Trading
Clean Development Mechanism
Joint Implementation
Other initiatives:
Asia-Pacific Partnership on Clean Development and Climate (voluntary emissions limits: US, China, India, Australia, Japan, South Korea, July 2005)
World Forum on Energy Regulation
The Johannesburg Renewable Energy Coalition
US:
Pioneered the first emissions trading scheme to manage pollutants
No compulsory emissions reduction
Chicago Climate Exchange (CCX): small but growing emissions trading market; voluntary commitments (Ford, IBM, American Electric Power, …)
Electric utility sector
The eight European brothers Company E.on
Turnover (billion) 67.759
No. of customers (million) 40
Generation capacity (MW in 2005) 53,508
Renewable generation capacity MW (%) (2005) 6,208 (11.6%)
EDF
63.434
38.2
130,776
24,547 (18.8%)
Suez
63.18
200
60
5,381 (18.5%)
Enel Endesa RWE
55.376 22.651 44.256
32 10.5 2
42,216 45,908 43,269
16,672 (34.7%) 8,162 (17.8%) 5,021 (11.6%)
ScottishPower 14.172 + 14.586 + Iberdrola Endesa 22.651
5.2
40
7,000 (17.5%)
10.5
45,908
8,162 (17.8%)
Vattenfall
4.9
32,448
11,560 (35%)
17.28
US electric utilities Company
Turnover 2005 (billion)
No. of customers Generation capacity Renewable generation (million) (MW in 2005) capacity MW (%) (2005)
Dominion Resources
18.041
~5
26,5
Duke EnergyŹ
18.944
4.5
37
Exelon
15.405
5.9
8
PG&E Corporation
14.528
5
10,634
16.7%
Southern Company
14.36
4.3
41
10.7%
American Power Con Edison
12.111
5
38
12
26
1,668
4.3
22
18%
Electric
First Energy FPL
12 10.522
Entergy
10.1
Xcel Energy
9.8
3.3
16
3%
0.951
0.36
2,6
5.7%
Austin Energy (community owned)
Comparison EU / US electric utilities Europe: electric and gas utilities sector aggregated, formed mainly by the former national champions, government-owned companies. US: sector fragmented, the Energy Information Administration of the Dept. of Energy (DOE) listing more than 3,000 utilities. Europe: corporate behavior is driven by regulation (EU-ETS carbon credits, mandatory disclosure and reporting) and incentives for the corporations going green (mainly through subsidies). US: electric utilities are localized, very state-specific and intoned to the state-level policy. Europe: cumulated revenue of top 10 is $505.9 billion and of top 20 is $619.7 billion. US: cumulated revenue of top US 10 is $139.2 billion and of top 20 is $230.4 billion. Europe: generation capacity of top 10 utilities in 2005 was 399.6 GW out of which 79.1 GW (19.8%) came from renewable sources. US: generation capacity of top 10 is ~165.5 GW representing ~16% of the existing generating capacity in 2005 (1,015.2 GW).
EDF • Dominant in France, strong in UK, significant in Germany and Italy, limited in E Europe • But failed to enter Nordic and Iberian markets and ventures outside Europe generally expensive failures • Can/should it try to retain its networks? • Can it strengthen its position in gas? • How far will privatisation go and what will its impact be?
How to control the companies in Europe? The Eight Brothers pose a democratic problem due to their size, resources and influence. New ways of democratic control should be explored The rights of workers and the trade unions to information and consultation must be increased Strengthened powers for European Works Councils are needed Improved stakeholder processes and serious Corporate Social Responsibility and Corporate Governance programmes are needed To prevent regulatory ‘capture’, regulatory bodies need to be democratised and given resources to allow for scrutiny of corporate strategies
EU and US response to CO2 emissions
Energy in EU Despite development in renewable energy, oil and gas will still provide about 60% of the worlds energy by 2020 Europe increasingly dependent: 90% of EU energy comes from import of oil & gas
EU Energy Policy: Green Paper on Secure, Competitive and Sustainable Energy for Europe
March 2006, follows the White paper (1997)
Increase share of renewable energy sources from 6% to 12% of gross consumption by 2010
Aims at a wide-ranging public debate before tabling concrete proposals for action
Comply with Kyoto Protocol commitments
Six priority areas:
Develop a coherent EU external energy policy
Further market integration
Trigger technology development
Secure long-term energy supply
Create jobs and growth
Tackle climate change
Criticized by NGOs:
Failure to make cutting energy waste and renewable energy sources a priority
Too focused on the liberalization of the electricity and gas markets and on nuclear power
Example: energy policy in Sweden
Electricity production in Sweden is basically fossil-free: 50% comes from hydropower and 50% from nuclear power
Reduction of oil: from 70 % of the total energy supply in 1970 to 30 % today
Renewable energy sources: 28 % of the total energy supply in 2004 (biomass, wind). More than 62 % of district heating fuel today is biomass
National program for energy efficiency and energy smart buildings
Carbon dioxide tax introduced in 1991
Energy taxes on electricity and fuels. 2004: energy taxes of €6.8 billion (2.5% of GDP)
Green Certificates for Promoting Renewable Electricity
Example: energy policy in France
1945: Policy designed to increase energy independence: 78% of the electricity generated in France is nuclear: "no oil, no gas, no coal, no choice"
1997: Signature of Kyoto protocol
2003: National energy debate
2004: Climate Plan (meeting Kyoto targets)
2005: Quantified targets (by law):
Cutting CO2 emissions by 75% by 2050
Production of 10% of energy requirement from renewable sources
An increase of 50% in the production of electricity from renewable sources by 2010
Incentive/fiscal measures: payment of half the cost of solar energy panels for household; financial incentives for the purchase of clean vehicles (electrical, hybrid, gas)
The European Emission Trading System The EU Emissions Trading System, which came into effect from January 2005, is a “cap and trade” scheme aimed at allowing the EU to meet its Kyoto commitments. The EU allocates emission allowances to each EU country under a mechanism called the National Allocation Plan or NAP. In turn, each EU government issues allowances to companies – i.e. permits measured in terms of the right to produce one ton of carbon dioxide. If a company emits more than its allowance, it has to buy permits to balance this excess while a company with lower emissions than its allowance can sell them in the open market. The burden-sharing agreement distributes emission-reduction targets differently between member states. The most significant criteria are the relative ease of reduction, amount already achieved against 1990 levels by the time the ETS came into force and relative stage of economic development. The scheme covers about 13,000 plants in five sectors – including power generation, refineries, ferrous metals, pulp and paper and building materials. Traded volume was about €10 bn in 2005 and is expected to triple in 2006. The price per ton of carbon dioxide emission has been volatile. Prices rose sharply and tripled between January 2005, when the scheme was launched, and April 2006 before dropping by over 50% in the last week of April.
Energy policy in US
The Environment: Electricity’s share of air pollution in US Carbon Dioxide
Electricity 40.5 %
Mercury
Nitrogen Oxides
Electricity 25.0 %
Sulphur Dioxide
Electricity 32.8 % Electricity 67.3 %
Sectoral Trends: Air Pollutants in US 20
Emissions
16 SO2 (million tons) NOx (million tons) CO2 (billion tons)
12 8 4 0 1985
1990
1995 Year
2000
Capacity Additions in US: 1990 & 2000 Coal
3063
502 2300
Nuclear 0 429 730
Petroleum
349
Gas
22238
62 33 Hydroelectric 752 Other
0
500
1000 1500 2000 2500 3000 3500 4000 4500 5000 MW 2000 Additions
1990 Additions
In future: distributed generation
Smaller, cleaner, some renewable: photovoltaics, wind, fuel cells, microturbines, reciprocating engines
Technological maturity: what’s commercially available?
Institutional barriers: interconnection, net metering, financing
Energy Lags in R&D Comparison in US Energy Primary Metals
Sector
Stone, Clay & Glass Products Industrial Chemicals Transportation Equipment Services Communications Equipment Prof. & Sci. Instruments Drugs & Medicine
0
2
4
6
8
R&D as % of Net Sales
10
12
Green Power Markets in the United States
Green Power
No legal definition.
Accepted definition: an electricity product with a high fraction of renewable energy content — most products are, in fact, 100% renewable energy.
Green Power Marketing
Green Pricing
The act of selling green power, generally used to describe competitive marketing (retail and wholesale).
Green power programs or tariffs offered by utilities.
Renewable Energy Certificates
Separation of the renewable energy attributes from the physical electricity product.
Origins of Green Power Marketing
Utility Green Pricing Programs
Allow utility customers to voluntarily fund renewable energy projects that are not “cost effective” under integrated resource planning.
Electricity Restructuring Retail competition will bring alternative suppliers and product choices to electricity consumers. Some marketers will want to differentiate their products based on environmental attributes. More utilities will offer green pricing to prepare for competition or because of the threat of competition.
Growth in Utility Green Pricing Programs Cumulative
30
120
New Programs 25
100
Cumulative
20
80
15
60
10
40
5
20
0
0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 As of September 2002
Consumers’ awareness and willingness to pay
Consumers awareness, expectations and actions
More than half of Americans claim they are willing to pay a premium for ‘‘green power’’
When given the opportunity, only 1% of them have chosen to do so among the 40 million that have access to a green market plan
Nov. 2006: California voters rejected proposition 87 on a low tax on oil production to fund alternative energy Source: Wiser et al (2001)
Consumers awareness, expectations and actions in Europe
A survey of public attitudes to the environment across the enlarged EU of 25 countries, carried out in November 2004, showed that almost 90% of Europeans believe that environmental concerns should be taken into account in decision-making in fields such as employment and the economy.
90% of respondents believe that policy-makers should regard environmental issues as of equal importance to social and economic ones.
State of the environment (72%) influences the quality of life as much as social factors (72%) and economic factors are perceived as slightly more important (78%).
The four environmental problems people worry about most are water pollution, man-made disasters (oil spills, industrial accidents etc), climate change, and air pollution.
Total energy supply in IEA countries
Role of Europe
Growing support on climate change and renewable energy from investors Examples of initiatives: The Carbon Disclosure Project on behalf of the Coalition of 284 institutional investors with assets of $41 trillion under management, asked in February 2007 for disclosure of information concerning the risks and opportunities due to climate change to 2,400 of the largest quoted companies in the world by market capitalization. Insight Investment (II), launched in 2002 and a founding signatory of the UN Principles for Responsible Investment, is already one of the UK’s largest asset managers with $198 billion in assets under management (December 2006).
Corporate response to CO2 emissions
Companies active in GHG and climate change
GE: “Green is green”; overall cut in CO2 by 2012 to 1% below their level in 2004
Pew Center on Global Climate Change: 42 members representing $2.4 trillion in market capitalization and over 3.3 million employees.
DuPont, United Technologies, Whirlpool
Royal Dutch/Shell and BP
Electric utility industry’s proactive initiatives
Roadmap on Sustainable Development (adopted in December 2004)
Dow Jones Sustainability Index (DJSI)
Areas assessed
Conclusions Because of:
Clear evidence for an increasing consumer and stakeholders demand for ethical and responsible behavior of companies
Strong stakeholder involvement in energy issues in Europe and elsewhere
Numerous policies at state level
Individual initiatives of energy firms
Paradoxically, energy companies could be a leading force in the way how US deal with the major energy issues. Even before:
Public awareness increase
Governmental regulations on CO2 emission reductions
Conclusions
Clear evidence for an increasing consumer and stakeholders demand for ethical and responsible behavior of corporations
Strong stakeholder involvement in energy issues in Europe and elsewhere
Outline 1.
Energy issues: the big picture
2.
Climate change issue
3.
Electricity
4.
Energy policy: private and public role
5.
Deregulation of the Electric Utility sector (EU vs. US)
6.
Electric utility sector overview
7.
EU and US response to CO2 emissions
8.
Voluntary (self-regulation) vs. mandatory approach
9.
Conclusions
Energy issues: the big picture
A few figures 2006 - 2030: cumulative investment in energy-supply infrastructure: $22 trillion (in 2006 $) - The electricity sector requires $11.6 trillion (half for transmission and distribution networks + half for power stations - The oil sector requires $5.4 trillion - The gas sector requires $4.2 trillion - The coal sector: $600 billion - The bio-fuel: $188 billion - OECD: ~$8 trillion - China: $3.7 trillion (mostly electricity) - India: $1.2 trillion (mostly electricity) - Middle East: $1.9 trillion (mostly oil and gas)
Source: World Energy Outlook 2007
Source: World Energy Outlook 2007
Source: World Energy Outlook 2007
Fuel shares of total energy supply
Source: World Energy Outlook 2007
Top 10 Global 500 in 2006 (Fortune 500)
The climate change issues
World CO2 emissions
Annual European Community Greenhouse Gas Inventory 1990-2004; Inventory Report 2006, UNFCCC Secretariat.
Change in CO2 emissions in OECD countries (1991-2003)
Variation in carbon intensity among countries - World average: 540 gCo2/kWh - EU: 349 gCo2/kWh - North America: 476 gCo2/kWh - China: 1007 gCo2/kWh - Former USSR: 1653 gCo2/kWh
United Nations Conference on Trade and Development (UNCTAD), 2005
Some comforting thoughts…
Some comforting thoughts…
Slide 0
April 3, 2006
Dealing with the energy and climate challenges
Electricity sector
Electricity consumption per capita
Evolution from 1973 to 2004 of World Electricity Generation by Fuel (TWh)
Renewables in electricity
Source: IEA
Development of the Electricity Generation Worldwide Today one quarter of the world population does not have access to electricity. The demand for electricity will increase more rapidly. It is expected that the worldwide electricity consumption will double from currently 16100 billion kWh to a total of 31 600 billion kWh by the year 2030. About one fifth of the electricity generated worldwide is consumed in the EU (EU-25: 3 180 billion kWh). In 2030 still 70 % of the electricity generated worldwide will be based on fossil fuels. EU-25 that 60% of the electricity generated will be based on fossil fuels.
Changes in OECD generation capacity
Source: IEA
Electricity consumption
Electricity generation
The dependence on imported coal will increase in Europe from currently 30 % to 66 % in 2030. The dependence on natural gas will rise to 81% and for crude oil this figure will increase to even 88 %. The total share of imported energies will increase from currently 50 % to some 70 % by the year 2030.
Intended New Power Plant Projects in EU-25
But …
Source: European Environment Agency EEA, 2006
Electricity generation from renewables
Sources of Electricity in US (2006)
In 2006, the total generation of electricity in US was around 4.1 trillion kWh.
Energy policy: private and public role
Energy Uncertainties
Rate of climate change
Possibility of abrupt climate change
Policy uncertainty
EU, US federal policy, BRIC policies
Post-Kyoto international policy
Cost uncertainty
R&D successes
Cellulosic ethanol, batteries, carbon sequestration, fusion
Learning curve for energy technologies
Wind, solar PV, biofuels
Key changes affecting the energy sector Privatization Maturity of clean technologies Global and social environmental agenda Increasing concern about security of supply New policy framework being put in place Development of regional and global energy markets Incentives to renewables Public-private partnerships Declining costs and risks Improved profitability
Energy RDD&D: Key role of the private-public partnership Public Sector
Research
Development
Demonstration
Private Sector
Deployment
Energy-Related Market Failures
Externalities
Local and regional: SOx, NOx, mercury
Global: Greenhouse gases
Public goods
R&D
Transportation infrastructure
Market power
OPEC
Electric power markets
Missing information
Consumer knowledge of energy efficiency
Energy-Related Government Failures
(Rational) ignorance on the part of voters
Science of climate change
Special Interest Politics
Tax breaks and subsidies
Underfunding of energy R&D
Automobile GHG Policy: Big Oil v. Detroit
International Policy Coordination
Kyoto, other agreements
Deregulation of the Electric Utility sector (EU vs. US)
A SINGLE ELECTRICITY MARKET IN EUROPE – or 27?
Multiple agendas 1. Lisbon (2000): To become the most competitive and dynamic knowledge-based economy in the world by 2010 2. Gothenburg (2001): EU Strategy on Sustainable Development 3. Kyoto (1997-2002): EU-15 to reduce by 8% GHG emissions in 20082012 compared to 1990 levels 4. Johannesburg (2002): Boost energy efficiency, foster the use of renewables and diversify energy supply Are these objectives consistent or contradicting each other?
Europe sleeps Market concentration – national incumbents remain dominant. Vertical integration – insufficient “unbundling” (i.e. separation) of competitive and monopoly businesses. Lack of transparency – creates market uncertainty and deters investment. Network issues – lack of access to and capacity on the pipes and wires. Varied and weak national regulators – including increased political interference.
Brussels awakes Legislative program designed to ensure that Europe's market would be completely open by the commission's deadline of July 2007. Since 1999 big companies have been able to choose among rival power suppliers and in July 2004 all business users won that right, at least on paper. Why? 1. Under renewed pressure due to pricing and security of supply – concerted UK lobby. 2. ‘Blackouts’ places a focus on networks – Sweden, Italy, UK in 2003 and 2007 in Germany. 3. Unease over E.ON/Ruhrgas ruling … with more ‘difficult’ M&A cases due. 4. Unease over windfall gain from National Allocation of environmental certificates. 5. Global context – pressures on security of supply and new dynamic of East European states exaggerates this.
Main features of the EU Directive Competition in generation free market entry with authorization process competitive tendering
Retail competition negotiated third party access single buyer model (based on published non-discriminatory tariff but eligible customers can contract directly) eligible customers with annual consumption > 100 GWh
Dispute resolution procedures
Electricity rates in Europe
US: Energy policy: DOE
Main focus of DOE was (is) nuclear weapons
Energy companies take care of energy in US
DOE policy failure with the nuclear waste issues
DOE developed an extremely bad public reputation among many stakeholders (many law suits)
Source: Communications and Stakeholder Participation, DOE, June 2003
The era of cheap purchased electricity is over Average Inflation-Adjusted US Electricity Price (2006 $) 12,0 11,0
c/kWh
10,0 2009 projection
9,0 8,0 7,0 6,0
1970
1980
1990
2000
But higher prices have not led to a higher level of service
US energy use, 1635-2000 (Quadrillion Btu)
US energy supply & demand
US Electricity
Supply: regional markets, no storage
Demand: increasing
Current status: undergoing deregulation, serious regional problems
Longer term: inadequate transmission system, siting problems, no R&D $, huge potential for innovations
17 SC
3 SC
1 SC
State disparities in price
Deregulation Status (0-100% scale)
9 to 66 (23) 2 to 9 (3) 0 to 2 (24)
Vertical Dis-Integration
Evolution of US energy policy (1)
PUCHA (1935)
Broke up holding companies
Empowered state control of vertically integrated utilities
State regulation of generation & distribution; Federal regulation of transmission
PURPA (1978)
Created QFs (renewable and cogenerators)
Demonstrated viability of wholesale competition
Energy Policy Act (1992)
Created “Exempt (from PUCHA) Wholesale Generators”
Transmission “wheeling” for retail distribution
Evolution of US energy policy (2)
Spring 2001 Bush/Cheney energy plan (supply-oriented)
Fall 2001: House passes Bush plan
Today: Senate debates energy policy
International Initiatives Kyoto Protocol (February 2005)
International Emission Trading
Clean Development Mechanism
Joint Implementation
Other initiatives:
Asia-Pacific Partnership on Clean Development and Climate (voluntary emissions limits: US, China, India, Australia, Japan, South Korea, July 2005)
World Forum on Energy Regulation
The Johannesburg Renewable Energy Coalition
US:
Pioneered the first emissions trading scheme to manage pollutants
No compulsory emissions reduction
Chicago Climate Exchange (CCX): small but growing emissions trading market; voluntary commitments (Ford, IBM, American Electric Power, …)
Electric utility sector
The eight European brothers Company E.on
Turnover (billion) 67.759
No. of customers (million) 40
Generation capacity (MW in 2005) 53,508
Renewable generation capacity MW (%) (2005) 6,208 (11.6%)
EDF
63.434
38.2
130,776
24,547 (18.8%)
Suez
63.18
200
60
5,381 (18.5%)
Enel Endesa RWE
55.376 22.651 44.256
32 10.5 2
42,216 45,908 43,269
16,672 (34.7%) 8,162 (17.8%) 5,021 (11.6%)
ScottishPower 14.172 + 14.586 + Iberdrola Endesa 22.651
5.2
40
7,000 (17.5%)
10.5
45,908
8,162 (17.8%)
Vattenfall
4.9
32,448
11,560 (35%)
17.28
US electric utilities Company
Turnover 2005 (billion)
No. of customers Generation capacity Renewable generation (million) (MW in 2005) capacity MW (%) (2005)
Dominion Resources
18.041
~5
26,5
Duke EnergyŹ
18.944
4.5
37
Exelon
15.405
5.9
8
PG&E Corporation
14.528
5
10,634
16.7%
Southern Company
14.36
4.3
41
10.7%
American Power Con Edison
12.111
5
38
12
26
1,668
4.3
22
18%
Electric
First Energy FPL
12 10.522
Entergy
10.1
Xcel Energy
9.8
3.3
16
3%
0.951
0.36
2,6
5.7%
Austin Energy (community owned)
Comparison EU / US electric utilities Europe: electric and gas utilities sector aggregated, formed mainly by the former national champions, government-owned companies. US: sector fragmented, the Energy Information Administration of the Dept. of Energy (DOE) listing more than 3,000 utilities. Europe: corporate behavior is driven by regulation (EU-ETS carbon credits, mandatory disclosure and reporting) and incentives for the corporations going green (mainly through subsidies). US: electric utilities are localized, very state-specific and intoned to the state-level policy. Europe: cumulated revenue of top 10 is $505.9 billion and of top 20 is $619.7 billion. US: cumulated revenue of top US 10 is $139.2 billion and of top 20 is $230.4 billion. Europe: generation capacity of top 10 utilities in 2005 was 399.6 GW out of which 79.1 GW (19.8%) came from renewable sources. US: generation capacity of top 10 is ~165.5 GW representing ~16% of the existing generating capacity in 2005 (1,015.2 GW).
EDF • Dominant in France, strong in UK, significant in Germany and Italy, limited in E Europe • But failed to enter Nordic and Iberian markets and ventures outside Europe generally expensive failures • Can/should it try to retain its networks? • Can it strengthen its position in gas? • How far will privatisation go and what will its impact be?
How to control the companies in Europe? The Eight Brothers pose a democratic problem due to their size, resources and influence. New ways of democratic control should be explored The rights of workers and the trade unions to information and consultation must be increased Strengthened powers for European Works Councils are needed Improved stakeholder processes and serious Corporate Social Responsibility and Corporate Governance programmes are needed To prevent regulatory ‘capture’, regulatory bodies need to be democratised and given resources to allow for scrutiny of corporate strategies
EU and US response to CO2 emissions
Energy in EU Despite development in renewable energy, oil and gas will still provide about 60% of the worlds energy by 2020 Europe increasingly dependent: 90% of EU energy comes from import of oil & gas
EU Energy Policy: Green Paper on Secure, Competitive and Sustainable Energy for Europe
March 2006, follows the White paper (1997)
Increase share of renewable energy sources from 6% to 12% of gross consumption by 2010
Aims at a wide-ranging public debate before tabling concrete proposals for action
Comply with Kyoto Protocol commitments
Six priority areas:
Develop a coherent EU external energy policy
Further market integration
Trigger technology development
Secure long-term energy supply
Create jobs and growth
Tackle climate change
Criticized by NGOs:
Failure to make cutting energy waste and renewable energy sources a priority
Too focused on the liberalization of the electricity and gas markets and on nuclear power
Example: energy policy in Sweden
Electricity production in Sweden is basically fossil-free: 50% comes from hydropower and 50% from nuclear power
Reduction of oil: from 70 % of the total energy supply in 1970 to 30 % today
Renewable energy sources: 28 % of the total energy supply in 2004 (biomass, wind). More than 62 % of district heating fuel today is biomass
National program for energy efficiency and energy smart buildings
Carbon dioxide tax introduced in 1991
Energy taxes on electricity and fuels. 2004: energy taxes of €6.8 billion (2.5% of GDP)
Green Certificates for Promoting Renewable Electricity
Example: energy policy in France
1945: Policy designed to increase energy independence: 78% of the electricity generated in France is nuclear: "no oil, no gas, no coal, no choice"
1997: Signature of Kyoto protocol
2003: National energy debate
2004: Climate Plan (meeting Kyoto targets)
2005: Quantified targets (by law):
Cutting CO2 emissions by 75% by 2050
Production of 10% of energy requirement from renewable sources
An increase of 50% in the production of electricity from renewable sources by 2010
Incentive/fiscal measures: payment of half the cost of solar energy panels for household; financial incentives for the purchase of clean vehicles (electrical, hybrid, gas)
The European Emission Trading System The EU Emissions Trading System, which came into effect from January 2005, is a “cap and trade” scheme aimed at allowing the EU to meet its Kyoto commitments. The EU allocates emission allowances to each EU country under a mechanism called the National Allocation Plan or NAP. In turn, each EU government issues allowances to companies – i.e. permits measured in terms of the right to produce one ton of carbon dioxide. If a company emits more than its allowance, it has to buy permits to balance this excess while a company with lower emissions than its allowance can sell them in the open market. The burden-sharing agreement distributes emission-reduction targets differently between member states. The most significant criteria are the relative ease of reduction, amount already achieved against 1990 levels by the time the ETS came into force and relative stage of economic development. The scheme covers about 13,000 plants in five sectors – including power generation, refineries, ferrous metals, pulp and paper and building materials. Traded volume was about €10 bn in 2005 and is expected to triple in 2006. The price per ton of carbon dioxide emission has been volatile. Prices rose sharply and tripled between January 2005, when the scheme was launched, and April 2006 before dropping by over 50% in the last week of April.
Energy policy in US
The Environment: Electricity’s share of air pollution in US Carbon Dioxide
Electricity 40.5 %
Mercury
Nitrogen Oxides
Electricity 25.0 %
Sulphur Dioxide
Electricity 32.8 % Electricity 67.3 %
Sectoral Trends: Air Pollutants in US 20
Emissions
16 SO2 (million tons) NOx (million tons) CO2 (billion tons)
12 8 4 0 1985
1990
1995 Year
2000
Capacity Additions in US: 1990 & 2000 Coal
3063
502 2300
Nuclear 0 429 730
Petroleum
349
Gas
22238
62 33 Hydroelectric 752 Other
0
500
1000 1500 2000 2500 3000 3500 4000 4500 5000 MW 2000 Additions
1990 Additions
In future: distributed generation
Smaller, cleaner, some renewable: photovoltaics, wind, fuel cells, microturbines, reciprocating engines
Technological maturity: what’s commercially available?
Institutional barriers: interconnection, net metering, financing
Energy Lags in R&D Comparison in US Energy Primary Metals
Sector
Stone, Clay & Glass Products Industrial Chemicals Transportation Equipment Services Communications Equipment Prof. & Sci. Instruments Drugs & Medicine
0
2
4
6
8
R&D as % of Net Sales
10
12
Green Power Markets in the United States
Green Power
No legal definition.
Accepted definition: an electricity product with a high fraction of renewable energy content — most products are, in fact, 100% renewable energy.
Green Power Marketing
Green Pricing
The act of selling green power, generally used to describe competitive marketing (retail and wholesale).
Green power programs or tariffs offered by utilities.
Renewable Energy Certificates
Separation of the renewable energy attributes from the physical electricity product.
Origins of Green Power Marketing
Utility Green Pricing Programs
Allow utility customers to voluntarily fund renewable energy projects that are not “cost effective” under integrated resource planning.
Electricity Restructuring Retail competition will bring alternative suppliers and product choices to electricity consumers. Some marketers will want to differentiate their products based on environmental attributes. More utilities will offer green pricing to prepare for competition or because of the threat of competition.
Growth in Utility Green Pricing Programs Cumulative
30
120
New Programs 25
100
Cumulative
20
80
15
60
10
40
5
20
0
0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 As of September 2002
Consumers’ awareness and willingness to pay
Consumers awareness, expectations and actions
More than half of Americans claim they are willing to pay a premium for ‘‘green power’’
When given the opportunity, only 1% of them have chosen to do so among the 40 million that have access to a green market plan
Nov. 2006: California voters rejected proposition 87 on a low tax on oil production to fund alternative energy Source: Wiser et al (2001)
Consumers awareness, expectations and actions in Europe
A survey of public attitudes to the environment across the enlarged EU of 25 countries, carried out in November 2004, showed that almost 90% of Europeans believe that environmental concerns should be taken into account in decision-making in fields such as employment and the economy.
90% of respondents believe that policy-makers should regard environmental issues as of equal importance to social and economic ones.
State of the environment (72%) influences the quality of life as much as social factors (72%) and economic factors are perceived as slightly more important (78%).
The four environmental problems people worry about most are water pollution, man-made disasters (oil spills, industrial accidents etc), climate change, and air pollution.
Total energy supply in IEA countries
Role of Europe
Growing support on climate change and renewable energy from investors Examples of initiatives: The Carbon Disclosure Project on behalf of the Coalition of 284 institutional investors with assets of $41 trillion under management, asked in February 2007 for disclosure of information concerning the risks and opportunities due to climate change to 2,400 of the largest quoted companies in the world by market capitalization. Insight Investment (II), launched in 2002 and a founding signatory of the UN Principles for Responsible Investment, is already one of the UK’s largest asset managers with $198 billion in assets under management (December 2006).
Corporate response to CO2 emissions
Companies active in GHG and climate change
GE: “Green is green”; overall cut in CO2 by 2012 to 1% below their level in 2004
Pew Center on Global Climate Change: 42 members representing $2.4 trillion in market capitalization and over 3.3 million employees.
DuPont, United Technologies, Whirlpool
Royal Dutch/Shell and BP
Electric utility industry’s proactive initiatives
Roadmap on Sustainable Development (adopted in December 2004)
Dow Jones Sustainability Index (DJSI)
Areas assessed
Conclusions Because of:
Clear evidence for an increasing consumer and stakeholders demand for ethical and responsible behavior of companies
Strong stakeholder involvement in energy issues in Europe and elsewhere
Numerous policies at state level
Individual initiatives of energy firms
Paradoxically, energy companies could be a leading force in the way how US deal with the major energy issues. Even before:
Public awareness increase
Governmental regulations on CO2 emission reductions
Conclusions
Clear evidence for an increasing consumer and stakeholders demand for ethical and responsible behavior of corporations
Strong stakeholder involvement in energy issues in Europe and elsewhere
